by Nupur Anand

NEW YORK (Reuters) – JPMorgan Chase and Wells Fargo will open the earnings season for major U.S. banks on Friday and investors will focus on their forecasts for net interest income as the Federal Reserve (Fed) proceeds with the month last to its first rate cut in four years.

Both banks are expected to report a decline in third-quarter profits due to an expected decline in interest income amid continued subdued loan demand.

In recent years, the banking sector has benefited from an increase in net interest income (NII), the difference between what institutions earn on loans and what they pay for deposits, thanks to the increase in Fed rate.

“Slow loan growth, higher deposits, and increased loan loss provisions due to higher unemployment will put pressure on margins and moderately lower NII,” says analyst Stephen Biggar banking at Argus Research.

Any further rate cuts could reduce banks’ revenue from interest payments, but also boost borrowing and transactions. The timetable for rate cuts planned by the Fed therefore constitutes a crucial point of attention.

“We expect the focus to shift quickly to the outlook as our economists anticipate a further 150 basis point rate cut by mid-2025 and expect the U.S. economy to avoid a recession,” said Betsy Graseck, banking analyst at Morgan Stanley, in a report published on September 30.

Investment banking divisions are expected to see a recovery in activity thanks to increased debt issuance volumes, follow-on equity issues and IPOs. Mergers and acquisitions have remained moderate, according to analysts.

Oppenheimer forecasts an average 7% rise in investment banking revenue for all banks, a significant increase but far from a rebound to historic levels.

Trading divisions should benefit from a resurgence in market volatility but their revenues could still fall compared to the second quarter given a typical seasonal slowdown in the third quarter, according to Moody’s analysts in a report.

According to estimates compiled by LSEG, JP Morgan Chase is expected to report a nearly 8% decline in earnings per share (EPS) in the third quarter. The decline is expected around 14% for Wells Fargo, according to UBS analysts.

Bank of America, which reports results on October 15, is expected to see its EPS decline by around 14%, according to LSEG. Expected the same day, its sister Citigroup could see a decline in its EPS of almost 20%, according to HSBC analysts.

Goldman Sachs, which will also publish on October 15, would see its EPS increase by 35% thanks to the improvement in its investment banking activities, analysts indicate.

The EPS of Morgan Stanley, which will close the publications of the six major American banks on October 16, should climb by 14% according to analysts at Oppenheimer, driven by increased activity on the equity and capital markets.

As for French banks, the third quarter 2024 results of Société Générale and BNP Paribas will be revealed on October 31 while we will have to wait until November 6 for Crédit Agricole.

Banking Q3 2023 EPS Estimates

for the third

quarter 2024

JPMorgan 4.00 4.33

Bank 0.77 0.90

from America

Citigroup 1.30 1.63

Wells 1.28 1.48

Fargo

Goldman 7.36 5.47

Sachs

Morgan 1.58 1.38

Stanley

Source: Average estimates compiled by LSEG

(Written by Nupur Anand; Bertrand De Meyer, edited by Blandine Hénault)

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